Patent Trolls' Favorite Judge Comes Up With Test To Keep Patent Cases In East Texas, No Matter What SCOTUS Said

from the take-that-scotus dept

We've written a few times about Judge Rodney Gilstrap, an East Texas federal district court judge, whom patent trolls seem to love. For well over a decade, we've discussed how patent trolls absolutely love to file cases in East Texas, and in the past few years, Gilstrap has basically been the judge for patent cases in East Texas. Incredibly, in 2016, Gilstrap alone handled 20% of all patent cases in the country (that was true in earlier years as well). Not 20% of the patent cases filed in East Texas -- but in the whole country. And if you read that link, you see that Gilstrap seems (a) proud of this and (b) insists that people are upset about all the patent cases going to East Texas because they don't like small-town America -- and not because the court makes it that much easier for trolls to shake down everyone.

Now, as you may recall, the Supreme Court, just a few months ago, appeared to slam the door shut on patent troll venue shopping with its ruling in the TC Heartland case. In that case, the Supreme Court ruled that patent law is pretty clear, that you need to sue where the supposed infringer "resides." For years, the courts had ignored this -- despite it being plainly stated in the law -- and said that you could file a lawsuit wherever a company did any business (and with many companies, that means anywhere at all).

Many folks suggested that the SCOTUS TC Heartland ruling should put a real damper on patent trolls running to Judge Gilstrap and East Texas.

However, it appears that Gilstrap may have other ideas. Ryley Bennett, from the Washington Legal Foundation, recently wrote up a depressing article about how Gilstrap appears to have come up with a new "test" for patent venue that more or less wipes out the Supreme Court's ruling. The case was a patent infringement case where Raytheon sued Cray in East Texas. Cray argued for a change of venue, which Gilstrap denied (just a month before the SCOTUS ruling on TC Heartland), pointing to a sale Cray had made in East Texas. So after TC Heartland, Cray asked Gilstrap to reconsider with that new precedent. And here, Gilstrap single-handedly created a new "test" about what is meant by "resides" in, making it possible to keep many cases in East Texas. The key here was that Cray had a single sales person who worked from home in the Eastern District of Texas. And, to Gilstrap, that's enough to establish "residence."

Bennett explains why this is so problematic:

According to Judge Gilstrap, to demonstrate that a defendant maintains a regular and established place of business, there does not have to be a physical presence or place at all—that’s just a persuasive factor for the court to consider. Inventory, under this analysis, is persuasive in finding a regular and established place of business. Thus, under Judge Gilstrap’s interpretation, a plaintiff can secure its venue of choice by using downstream targets. Even when a corporation does not have property in the EDTX, under this test, if the corporation has remote (work-from-home) employees—who are reimbursed for business expenses such as cell phone and internet use, along with travel reimbursement—it can be subject to venue in a district where any of its remote employees resides.

Further, under Judge Gilstrap’s second factor, a defendant’s “representations” can be a mere advertisement about what the company does or where it is located, even if the company is located in a different state. Ironically, although Judge Gilstrap repeatedly stated that the business world has changed since the adoption of § 1400 and it should be adjusted accordingly, he cited a 1910 decision when stating that customer inquiries directed at an agent who happens to be in the EDTX should be considered persuasive when determining if there is a regular and established place of business there.

Judge Gilstrap’s third factor—benefits received—is not limited to sales revenues; rather, any benefit that the defendant derives from presence in the EDTX should be considered. Does this mean that a happenstance conversation in a restaurant with a person who then becomes a customer outweighs other factors and gives rise to a regular and established place of business? Under Judge Gilstrap’s third factor of his test, it does.

In explaining the final factor—targeted interactions—Judge Gilstrap cited a Sixth Circuit personal jurisdiction case as support that existing or potential customers, customer support, or targeted marketing efforts give rise to a regular and established place of business—the same type of personal jurisdiction considerations that the Supreme Court in TC Heartland said did not apply to venue determinations.

Because of all of this, Bennett notes that the new "test" feels an awful lot like the old rules that the Supreme Court just threw out. Not surprisingly, Cray immediately asked the appeals court to weigh in on the issue, while Raytheon has asked to leave Gilstrap's ruling in place. As it stands, CAFC is still reviewing the issue, and various parties are lining up filing amicus briefs urging the court one way or the other.

However, it does at least give the appearance of a highly criticized East Texas court judge effectively stacking the deck with this test in a manner that will allow him to ignore the clear spirit and substance of a Supreme Court ruling, in an effort to keep the patent troll case train to keep dumping cases at his courtroom doorstep.

Reader Comments

Goodbye East Texas Jobs

So let's assume for a second this is allowed to stand.... All I'm hearing is it is dangerous as a company to have business dealings or employees in East Texas...

Assume for a moment that you are a tech company that has to litigate this nonsense. Wouldn't it make more sense for me to lay off my East Texas workforce (especially in remote instances like this) to lower my risk? Be cheaper to fly in a sales person every week than 'establish residence'.

If you live in East Texas, say goodbye good paying jobs, courtesy of your one and only Judge Gilstrap!

Re: Goodbye East Texas Jobs

Not only that, but websites will probably block IP addresses assigned to East Texas because Judge Gilstrap will interpret that that constitutes having a business in East Texas. He appears to be quite imaginative in not only his patent case rulings, but in his interpretation of SCOTUS rulings.

Re: Re: Re: Goodbye East Texas Jobs

Re: Goodbye East Texas Jobs

Forget employees.

His sales doctrine basically says you have to refuse to sell ANYTHING in East Texas to stay out of it.

You also have to avoid advertising in East Texas, so I guess all your TV ads have to specifically exempt whatever TV networks air in East Texas. And all web ads have to never appear on IP addresses associated with East Texas.

And hell, while we're at it, your website should probably not even show up on google search results done in East Texas. Plus you need to IP block East Texas on your website.

So essentially, there's not a single business that sells things in America that can survive his East Texas ruling.

Re: Goodbye East Texas Jobs

"... that existing or potential customers [...] give rise to a regular and established place of business"

Wow. Just wow. Having a potential customer in the Eastern District will qualify the case to be held there.

So, if you built target detectors for the something like the LHC you could be worried because if they built a super collider in East Texas they would be a potential customer of a potential collider. I don't think anyone could escape that logic.

I hope when this gets to the CAFC it decides this right -- but they appear to like being smacked down by the supremes.

Re: Re: Goodbye East Texas Jobs

It's worth noting that that potential customer test is the one used right now by the federal government to see if the Commerce Clause applies or not -- and if it does apply, therefore whatever it applies to is within federal authority to regulate or prohibit.

Under current Commerce Clause interpretation, if I choose to buy local products that are entirely locally sourced, because my decision to do so means I didn't buy from someone in another state, my purchase impacts interstate commerce and therefore the commerce clause applies to whatever I bought.

Judge Gilstrap seems to have simply applied that logic to court jurisdiction. After all, if it's constitutional to do one, both probably are constitutional.

Re:

Boys Club test.First rule of Boys Club is you have to be a raging grease dumpster fire traveling at 100 kph toward a rich white people's daycare facility before the Club theatrically slaps your wrist and makes tsk tsk noises.

On the other hand, some members who have been seen to take a stand for actual justice may receive a bit of a pranging.

Re: Re:

Activist Judge

Have I heard any spin doctors call Gilstrap an activist judge? This judge is reasoning and RULING to support a preferred conclusion that he must know is improper, Mr. Masnick has said or described evidence to such.

More broadly, both our justice and political systems have long been on a trajectory where they are openly moved mostly by naked power as opposed to law or even moral or ethical considerations.

Enough

When a JUDGE plays games with a SUPREME COURT ruling in order to keep the bribes coming in, it's time to lock 'em up and throw away the key. The State Police should be called in, and this douche-bag tossed in a cell in the state capital while they comb through every last bit of his life to find the skeletons.

judgement

I mean, the guy's job is to exercise judgment, and this is evidence of spectacularly bad and self-serving judgment. I understand that the standards for removal are pretty damn high, but doesn't this warrant some type of investigation and censure?

Taste that desperation

If trolls can't secure an easy win in his area then they have no reason to set up shop there, and he might have to get a job that involves more than just constantly repeating "Yup, that's a patent alright, and that means it's valid. Pay up."

Hopefully the higher courts slap him down hard for this blatant attempt to keep the parasites under his jurisdiction via a 'test' that looks almost specifically designed to ignore a supreme court ruling.